business intelligence using public information · 2017-02-15 · step up their board involvement is...
TRANSCRIPT
Business Intelligence Using Public Information
Priscilla S. Johnson
Federal Reserve Bank of Atlanta
The most important “red flag”
for directors tostep up their board involvement is an earningsrestatement.
Source: PWC Annual Corporate Directors Survey 2010 Results
Objectives
Describe types of public information available for bank analysis
Discuss how media information influences business strategies and
practicesReview information available from
data providers for analysisDiscuss advantages of establishing
formal and informal relationships and networks for business intelligence
Factors that Impact the Banking Business
• Economy• Market• Regulatory Environment• Customers• Credit Rating Agencies• Accounting Rule makers• Geography / Footprints and Competitors• Industry Practices• Technology and Social Networks
Public Information Sources
• Regulatory Reports• SEC Filings (Form10‐Q/K and 8‐K)
• Credit Rating Agencies• Media Information
• Data Providers• Networks
Regulatory Reports
• Summary of Deposits (SOD)– Deposit data for branches and offices of all FDIC‐insured institutionshttp://www2.fdic.gov/sod/
• Consolidated Reports of Condition and Income “Call”
Report
(FFIEC 031/041)– Balance Sheet, Income Statement, Statement of Equity Capital
and Supporting Schedules
– Source of information for the Uniform Bank Performance report
(UBPR)
• Available in the Central Data Depository (CDR)
https://cdr.ffiec.gov/public/
Uniform Bank Performance Report (UBPR)
• Analytical Tool• Primary source is the Report of Condition and
Income “Call”
Report (FFIEC 031/041)• Presents three types of data for use in
financial analysis– Bank’s data– Peer Groups– Percentile Rankings
• Data are in Ratios
Uniform Bank Performance Report (UBPR)
• Shows impact of Management’s decisions
and economic conditions on the bank’s performance and balance sheet composition
• Evaluation of a bank’s current conditions• Trends in its financial performance
• Comparisons with the performance of its peer groups
Bank Analysis Factors C‐A‐E‐L
CAEL Components Review Order
• Asset Quality• Earnings• Capital• Liquidity
““In the order of cause and effectIn the order of cause and effect””
Asset Quality Analysis
• Asset Mix of Balance Sheet
–Percentages of total assets in loans, securities and other assets
• Past Due and Nonaccrual Loans and Leases
– Total past dues by type of loan
–Nonaccrual loans to loans by type
What to look for when analyzing asset quality:What to look for when analyzing asset quality:
Asset Quality Grid
Ratio Description Level % Peer Pct. One Year Trend
Page 1Provides an
overview of bank’s entire financial
condition
Net loss to average total ln&ls
Ln&Ls allowance to total ln&ls not HFS
Page 6Provides percentage
composition of assets and liabilities
Other real estate owned as % of avg.
Assets
Page 8AProvides past-due
and nonaccrual data
% Total P/D Ln&Ls – incl nonaccrual
Non Curr Lns + OREO to Lns +
OREO
Inquiring Minds Want to Know….
DetailsDetails
Cause and effect?Cause and effect?
DetailsDetails
DetailsDetails
Level, trend, why?Level, trend, why?
RememberRemember….
Regulatory Reports
• Bank Holding Company (BHC) Reports– Consolidated Financial Statements for Bank Holding Companies
(FR Y‐9C)
– Parent Company Only Financial Statements for Large BHCs
(FR Y‐9LP); for Small BHCs
(FR Y‐9SP)
– Source of the Bank Holding Company Performance report
(BHCPR)
– Report of Changes in Organizational Structure (FR Y‐10)– Other reports prepared by subsidiaries of the BHC
• http://www.federalreserve.gov/reportforms/• Available in the National Information Center (NIC)
National Information Center (NIC)
• NIC is a repository of financial data and institution characteristics collected by the Federal Reserve
System– Institution and Foreign Banking Organization
Search– Organization Hierarchy– Branch Locator– BHCPR Performance Reports
• http://www.ffiec.gov/nicpubweb/nicweb/NicHome. aspx
Form Number Description Filing Requirement
FFIEC 031/041Consolidated Reports of
Condition and Income
FFIEC 031 Filers with more than one foreign office have
up to 35 calendar days after the quarter end.
FFIEC 041 Filers ‐
30 calendar days after the quarter
end.
FR Y‐9CConsolidated Financial
Statements for Bank
Holding Companies
40 days after the quarter end for March 31, June 30th
and September 30th
45 days after the quarter end for December 31
FR Y‐9SP
Parent Company Only
Financial Statements for
Small Bank Holding
Companies
45 days after June 30th
and December 31
FR Y‐10Report of Changes in
Organizational Structure
Submitted within 30 calendar days of a reportable
transaction
Regulatory Reports
http://www.federalreserve.gov/reportforms/
SEC Form 10‐Q/10‐K
• filed by companies with more than $10 million in assets whose securities are held by more than 500
shareholders. There are 3 groups of filers:– Large Accelerated Filers ‐
$700 million or more
– Accelerated Filers ‐
$75 million– Non Accelerated Filers –
less than $75 million
• 10‐Q
includes unaudited
financial statements and is filed quarterly
• 10‐K
includes audited
financial statements and provides a comprehensive overview of the business and financial condition; filed annually
FR Y‐9C and Form 10‐Q Reporting Similarities
• FR Y‐9C and Form 10‐Q– Similar financial data – balance sheet and income
statement– Prepared using the same sub systems and general
ledger– Based on U.S. GAAP– Same quarterly as‐of date– Major themes transcends both reports– Major asset and liability categories should be the
same
Form 10‐Q vs. the FR Y‐9C
• Fundamental difference in purpose:– Form 10‐Q is for financial performance
– FR Y‐9C is used for safety and soundness
• Fundamental reporting difference:– Form 10Q is reported based on lines of business
– FR Y‐9C is reported on a legal entity basis
Business Lines Legal Entities
• Business lines focus on the type of activity.• Legal entities focus on the type of entity,
location
and nature of business.
Business Lines (Form 10‐Q) Legal Entities (FR Y‐9C)
Commercial Lending Subsidiary (domestic or foreign)
Consumer Lending Branch (domestic or foreign)
Mortgage Lending Affiliate
Wealth Management Associated Companies
Private Banking Corporate Joint Ventures
Business Line vs. Legal Entity Reporting
PSJ Bancshares extends two loans totaling $50 million dollars to two different customers abroad. A
loan for $35 million dollars is recorded in the bank’s branch in the United Kingdom, and a loan for $15
million dollars is recorded in the BHC’s
subsidiary in Spain.
Banker’s perspective: The company has foreign risk exposure of $50 million dollars.
Business Line vs. Legal Entity Reporting
• Regulatory Reporting Perspective: the type of entity that booked the loan determines reporting
– The $35 million dollar loan booked in PSJ Bancshares’ bank’s branch
in the United Kingdom would be
reportable on the Foreign Branch Condition Report (FFIEC 030)
– The $15 million dollar loan booked in PSJ Bancshares’ subsidiary
in Spain would be reportable on the
Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations (FR 2314)
Provided the reporting criteria is met
FR Y‐9C Form 10‐Q Based on legal entities Based on lines of business
Based primarily on U.S. GAAP Based on U.S. GAAP
Primarily used by Regulators Multiple Public Users
Financial Statements include minimal
financial disclosuresFinancial Statements include
detailed disclosures
Detailed Classifications Broad Classifications
Should advise the FRB if filing late Must file notice of non‐timely filing
Revisions Restatements
FR Y‐9C and Form 10‐QReporting Differences
FR Y‐9C and Form 10‐Q for Comparative Analysis
• FR Y‐9C schedules to compare to Form 10‐Q– HC –
Balance Sheet
– HC‐B –
Securities
– HC‐M –
Memoranda
– HC‐Q‐Assets and Liabilities Measured at Fair Value
– HC‐R‐Regulatory Capital
SEC Form 8‐K Current Report
• The 8‐K is an interim
report filed when events
or information
take place between the release of the 10Q and 10K.
• Business and Operations• Financial Information (Earnings Releases and Restatements)• Securities and Trading• Matters relating to Accountants and financial statements• Corporate Governance• Asset Backed Securities
• Report must be filed within 4
business days following the
event• Corporate Earnings Releases and conference calls are
generally 2‐3 weeks after quarter end
Business Intelligence using SEC Reports
SEC reports provide business intelligence into the
company’s
Financial Performance
Business strategies
Operations
Products
Significant policies
Rule changes
Risks
Decisions
Outlook
Footprints
Form Number Description Filing Requirement
Form 10‐Q Quarterly Report
Large Accelerated Filers 40 days after quarter
end.
Accelerated Filers and all Others 45 days after
quarter end.
Form 10‐K Annual Report
Large Accelerated Filers 60 days after fiscal year
end.
Accelerated Filers 75 days after fiscal year end
All Others 90 days after fiscal year end
Form 8‐K Current Report 4 Business Days after the event
SEC Forms
Available at www.sec.gov
Credit Rating Agencies
• Credit Rating Agencies:– Monitor rated securities and issuers
– Base ratings on quantitative and qualitative factors:• Asset Quality• Capital Adequacy• Business Mix
• Level of Earnings• Liquidity• Developing events or trends• Agency view
Credit Rating Agencies
• Credit Rating Agencies:– Determine if a ratings change is warranted then
debt is placed on • Watchlist
if reviewed by Moody’s
• CreditWatch if reviewed by S&P
• Ratings Watch if reviewed by Fitch
• These lists are considered an adjustment in credit quality
Credit Rating Agencies
• Implications of a ratings action:
downgrade– Adverse affect on liquidity and financial condition– Increase in financing costs– Limited access to short term funding
– Potential lost of Customers
– Increase in deposit premium expense
Analyzing Media Information
• What question(s) would you have about the bank, industry, or business practice?
• What actions would you take?• What preventive measures could have been in place?• Are there
– Signals?– Triggers?– Predictors?– Indicators?– Expectations?
The company said it determined that certain listings of residential loans and commercial participations wereintentionally
misstated
by
a
former
Bank
officer. The
Companybelieves the misstatements were made to disguise the factthat
its
Bank’s
primary
correspondent
bank
account
had
not
been properly reconciled. Also, the company said its principal
financial
and
accounting officer
of
the
holding
company
and
bank
will
resign. The
officer
was
not
in
any
way
connected
with the accounting entries and reconciliation.
The company will restate its financial statements
Media Information
Your Thoughts…
A
well‐regarded
president
of
a
small
bank
who
had
substantial control over the
bank’s
operations,
colluded
with
another
bank
employee
to
make
several
fictitious
loans
over
a
period
of
time. The
president
used
the
proceeds
to
make
speculative
investments
in
the
stock
market
based
on
the
apparent belief that rapid appreciation in investments would
allow
him
to
repay
the
loans
in
a
short
period
of
time
(thereby
avoiding
detection)
and
retain
sizeable
profits.
However, after
investments
were
made,
the
stock
market
and the specific investments declined in value, preventing the
repayment of the loans, and leading to their detection.
Source: The Director’s Primer, FRB Atlanta Department of Supervision and Regulation
Data Providers’
Information for Bank Analysis
Data Providers
• Online provider of financial data and news• Gather data available from multiple sources
• Package data into a user friendly single source web based application
• Allow customization
• Features useful for bank analysis• Information available by sectors
Information Available from Data Providers
• Financial Performance Data• Market Data• Recent News• Document Highlights• Upcoming Events• General Corporate Data• Queries, Tools and Templates• Recent Research reports and studies
Benefits of Data Providers
• Real time availability of information• Many useful features
– Set up a portfolio of institutions / Corporate Profiles– E‐mail notification when your selected banks are in
the news– Briefing Book – Tear sheets and Templates– Excel Add‐in– Create queries
• Education –
Webinars and podcasts• Training is usually available on the product
Formal Networks
• Formal Networks– Business line contacts (inside the organization)– Regulatory Agencies– Local Chapters of Professional Organizations
• Accounting• Banking
– Industry Groups and Associations• National Bankers Association• American Bankers Association• Independent Bankers Association
Social Networks
• Social Media (Zoom‐In)– Community Building– Product Research– Customer Service– Marketing and Promotion
• Social Media (Zoom‐out)– Collaboration– Knowledge and Information Sharing– Vendors and Suppliers Information– Forum for Questions and Answers– Common Practices
Formal and Social Networks
• Benefits of Formal and Social Networks – Current / up‐to‐date information
– Consultants– News and Publications– Knowledge and Information sharing
– Time and Resources
– Among your peers
– Education and Conferences
Summary of Public Information
• Regulatory Reports• Annual Reports to Shareholders• Investor Presentations• SEC Filings (Form10‐Q/K and 8‐K)• Credit Rating Agencies• Media Information• Data Providers• Networks
Takeaways
• Use business intelligence to:– Know and understand your bank’s
• Results (financial and operational)• Risks• Relationships• Readiness
– Ask informed questions and make informaed business decisions
– Keep abreast of business and industry practices– Stay attuned to changes…